By Chandeepa Wettasinghe
The government’s recent decision to hike excise duties to raise revenue to support the budget deficit is likely to push the populace to use riskier substances which are mostly illegal and pose higher health risks. 

The government increased the prices of a cigarette by Rs.3 to Rs.33, while a litre of light beer was increased by Rs.40, Rs.60 for strong beer, Rs.110 for molasses and Rs.160 for foreign liquor, over the weekend.

“This is basically a fiscal revenue raising measure. This happens annually, but not in the budget. It happens before the budget to cover up any of the shortcomings of the past year. But this year, it was a 10 percent increase for cigarettes, which is bigger than in the past,” JB Securities CEO Murtaza Jafferjee said.

He said that there are only about 2 million smokers and 1.5 million alcohol consumers in the country, which makes for a narrow segment of taxation, and while the white collar and urban upper middle class will continue with legal and less risky substances, the blue collar workers will suffer.

“In other countries, people drink for social purposes, but in Sri Lanka, cigarettes and strong beer are consumed by the blue collar working class people. They drink for psychological reasons. They literally drink their sorrows away,” he said.

He noted that increasing the prices will push them into riskier alternatives like ‘beedi’ which does not have a filter, and ‘kasippu’ (moonshine) which has methanol instead of ethanol.

“There will be a rise in illegal alcohol like ‘kasippu’, and distilleries will attempt to increase the volumes of their illicit production,” he said.

Market leaders Ceylon Tobacco Company PLC, Distilleries Company of Sri Lanka PLC and Lion Brewery (Ceylon) PLC have been continuously asking the government to tackle illegal operations in their industries which do not pay taxes and sell riskier alternatives to the public.

Jafferjee said that an 11 percent increase in cigarette consumption was seen so far this year compared to a 20 percent decline from 2011-2014, and that the increase came from the measures in the interim budget which raised the purchasing power of the bottom end of the pyramid.

However, he noted that there was no increase in the number of smokers, with existing smokers increasing their consumption to 6-7 cigarettes daily.

A market analyst told Mirror Business that the cigarette and alcohol production companies would see no major change in their bottom lines from the hike, while Jafferjee maintained that most companies which have been having a record year due to the populist budget will see only a slight reduction in profitability.
Health Minister Rajitha Senaratne had rationalized the taxes last week saying it would decrease the rate of non-communicable diseases in the country.

The interim budget had outlined a budget deficit of 4.4 percent of GDP which was to be achieved through taxation measures not yet passed in Parliament. The IMF recently said that the deficit would be around 5.5 percent of GDP.